- Rise in government bond yields continues to put downward pressure on the yen.
- The dollar with mixed results on Monday, remains firm after hawkish tones.
- USD/JPY pulls back after hitting 138.99 and trims gains.
The USD/JPY trimmed gains in the European session and fell back to 138.36. The pair had reached as high as 138.99 hours ago, the highest level since July 15. The pullback came as the dollar rally moderated across the market.
The Jackson Hole symposium had a combative tone to it. inflation, making it clear that the rise in interest rates will continue. The US 2-year bond posted the highest yield since 2007, while the 10-year is testing a recent high. The rises are also replicated in Europe.
The and in is affected by the rise in yields. Risk aversion in the markets at the moment is not offering strong support to the Japanese currency.
After Friday’s crash on Wall Street, the futures of the main indices are in the red and point to continue the decline. In Europe the falls exceed 1%.
With no impact data ahead, what happens to bonds and stocks will be key for USD/JPY. Should there be a recovery in bonds due to increased risk aversion, the pair could reverse direction sharply.
First test at 139.00
USD/JPY has its sights set on 139.00 and if it manages to break and firm above it, the focus will shift to 140.00. Before the latter, there is the 139.40 zone, the maximum in decades reached in July.
At 137.70 is the relevant short-term support zone. If it continues above, the USD/JPY will have the path ready for more rises. Then 135.95/136.00 appears. A drop below 135.20 would leave the pair somewhat weak and favor a correction.
Technical levels
Source: Fx Street
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